Airplane - All posts tagged Airplane

Embraer (ERJ) produced second-quarter business jet deliveries that were modestly ahead of expectations, but the Brazil company’s duopoly with Bombardier (BDRBF) faces competitive challenges from new entrants in Russia and China.

Bloomberg

A Jet Airways plane lands near Mumbai. India.

RBC Capital Markets sees headwinds for the Embraer despite modestly improving fundamentals. RBC notes that most of Embraer’s revenue comes from outside Brazil, while about 25% of its costs are in local currency. This mismatch benefits Embraer in the short term as the U.S. dollar strengthens against the Brazilian real, but a stronger real eventually will hurt Embraer’s earnings. RBC writes:

“While Embraer posted strong Q2/15 deliveries in Executive, the key will be to what extent has management maintained pricing. The delivery ramp should provide for operating leverage, in which we have taken up our Q2/15 EBIT margin expectation to 8.5% (from 8%). However, margin gains could be offset by softer pricing in the face of a competitive market dynamic. We note that we see a lower risk to this scenario, as Embraer’s light-cabin bizjets continue to resonate with customers, with what we see as improving demand from US corporates …

While a duopoly has persisted between Bombardier and Embraer over the last three decades in the regional jet market, new entrants are emerging, presenting a risk to a pie once cut just two ways. Mitsubishi has been the real source of competition … Other new potential entrants, including the Commercial Aircraft Corporation of China (COMAC) with its new regional jet, the ARJ21, and Russia’s Sukhoi continue to struggle with developmental issues—although we suspect that persistence will eventually overcome initial growing pains.”

Embraer shares were down 1.4% to a recent $30.47. RBC has a sector perform rating on the stock, and a $36 price target based on a sum-of-the-parts valuation using 2016 earnings before interest, taxes, depreciation and amortization (Ebitda).

The iShares MSCI Brazil Capped ETF (EWZ) is down 1% today, in line with the decline in the Vanguard FTSE Emerging Markets ETF (VWO).

Russian Foreign Minister Sergei Lavrov (L) talks to U.S. Secretary of State John Kerry.

In recent weeks, NATO jets have intercepted scores of Russian planes flying over Baltic air space.

It’s a show of military strength as the Russian economy and currency tell another story, reflecting lower oil prices, sanctions and the ongoing conflict in Ukraine. The ruble today continues its deterioration, trading at 54.81 rubles to the U.S. dollar in recent trading.

Among Russia stocks, Yandex (YNDX) is down 3.4% today. Shares of Gazprom (OGZPY) are down 1.6%. But U.S.-traded shares of Sberbank Russia (SBRCY) are up nearly 3% today. The Market Vectors Russia ETF (RSX) is down 1.8% today, while the iShares MSCI Emerging Markets ETF (EEM) is down a point.

Shares of Russian telecom VimpelCom (VIP) are down 4.5% in U.S. trading. The U.S. Department of Justice and the Securities and Exchange Commission are investigating VimpelCom’s business dealings in Uzbekistan, and Telenor Chief Executive Jon Fredrik Baksaas will quit the VimpelCom board, The Wall Street Journal reported Tuesday.

From RBC Capital Markets, quoting Reuters:

“As European countries look to increase spending on U.S. developed anti-missile defense systems, particularly in light of the situation in Ukraine, Russia’s Foreign Minister Sergei Lavrov said … that Moscow would have to “adequately” respond to such measures. “We warn that at some stage of the development of the American missile defense systems, we will have to take adequate measures to ensure our own security,” Lavrov said according to the RIA news agency. He added, “We don’t intend to get drawn into an expensive arms race but we will provide the defensive capabilities of our country reliably.”

Embraer and Republic Airways Holdings Inc signed a contract for 47 E-175 jets, with an option to acquire an additional 47 aircraft. The new aircraft will be operated by Republic under AMR Corp’s American Eagle brand.

The contract provides welcome relief for the order-starved Brazilian planemaker after it lost the first major U.S. order for regional jets under labor deals allowing regional affiliates to fly larger planes. In December, Canadian rival Bombardier Inc booked a Delta Air Lines deal for up to $3.29 billion.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.